Chinese Bitcoin mining operator shutters major pool as profitability tanks

Valarhash, the Chinese Bitcoin mining operator behind Bytepool and 1THash mining pools, has shut down internal Bytepool operations, according to local media reports on Monday. Bytepool contributed more than 4% of all hashing power for the Bitcoin network in December 2019, and the Bytepool and 1THash pools contributed more than 9% of all network power at their peak. 

Valarhash launched Bytepool and 1THash in August 2019 after developing a mining facility in Chengdu, Sichuan province powered in part by hydroelectricity. The company reported a hash rate for Bytepool of over 4,000 petahashes per second (PH/s) in February (equivalent to more than 7,500 Antminer S19 Pros).

However, BTC.com hash statistics report no activity from the pool since April 4, 2020. Sicuhan has become a hotbed for Bitcoin mining in China over the past few years, home to an estimated 54% of worldwide Bitcoin mining capacity in May 2019, according to digital asset firm CoinShares.

Valarhash has not released an official statement on the apparent shutdown, but the operation likely suffered from cash flow issues from the start. Even with a relatively low cost of electricity, Bitcoin mining profitability fell 50% between August and December 2019, then fell an additional 50% from December levels during the March crash. 

Established Bitcoin miners have operated for several years, allowing them to build capital reserves when profitability was greater thanks to higher Bitcoin prices and lower network difficulty. Recent and prospective new entrants like Huobi.pool (launched March 2018), OKExPool (launched June 2019) and the forthcoming Binance mining pool all have the benefit of existing cash flows from trading fees on their exchange platforms. Valarhash had no such advantages in a business with notoriously tight margins and high operating costs.

A renewed focus on Valarhash’s 1TMine program may also indicate a drive for improved cash flows. The 1TMine Twitter account created in March 2020 made its first post on March 12, and soon began advertising rentals for miners contributing to the 1THash mining pool. 

Rented miner programs—sometimes referred to as ‘cloud mining’—are a hallmark of early days of cryptocurrency mining that pay pool rewards directly to rental customers, minus the cost of electricity. The programs allow mine operators like Valarhash to run miners at no cost and earn revenue by selling miners obtained at wholesale cost to individuals at retail prices.